a) Saha have two investment alternatives from which he need to choose one. If the current...

a) Saha have two investment alternatives from which he need to choose one. If the current market interest rate is 8%, which alternative would saha choose and why?

Alternative 1: Receive $ 280 semi-annually for the next 12 years

Alternative 2: Receive $ 12000 lumpsum at the end of 12 years

b) During the four years of saha's University life, saha have received the following amounts of money at the end of each year for outstanding performance from the university fund. He deposited his money in a savings account paying 10 percent rate of interest per annum. How much money will he have on the graduation day at the end of four years?

Year	$
1	350
2	330
3	350
4	400

Expert Solution

1.
Future value of Alternative 1=280/(8%/2)*((1+8%/2)^(2*12)-1)=10943.1291542
As the future value of Alternative 1 is less than the lumpsum in Alternative 2, choose Alternative 2

2.
=350*1.1^3+330*1.1^2+350*1.1+400
=1650.15

jeff jeffy answered 2 years ago

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